## Facts

- Purchasers of certain snack products sued the distributor and manufacturer, alleging the products’ fat and caloric content was substantially higher than advertised.
- Plaintiffs sought to proceed as a nationwide class asserting fraud, negligent misrepresentation, breach of express warranty, and violations of New York General Business Law §§ 349 and 350.
- After class certification was sought, the parties negotiated a nationwide settlement and submitted a stipulation of settlement.
- The trial court conditionally certified a nationwide class for settlement purposes only, covering U.S. retail purchasers during a specified period.
- The settlement’s principal relief required issuance and redemption of up to $3.5 million in discount coupons (about 20% off retail price), plus periodic product testing for four years with reporting to class counsel.
- The settlement included a broad release and injunction barring non-opt-out class members from bringing released claims (excluding personal injury claims).
- The settlement contemplated up to $790,000 in attorneys’ fees to class counsel.
- A class member who had filed a separate individual action objected, arguing the settlement provided inadequate value relative to the scope of released claims and that fees were unsupported.
- The trial court approved the settlement, certified the settlement class, dismissed the action, and awarded fees; it later denied motions to vacate and for reargument/renewal.
- The objector appealed to the Appellate Division, Second Department.

## Issues

1. Whether the trial court properly certified a nationwide settlement-only class without an on-the-record analysis of CPLR article 9 requirements.
2. Whether the trial court adequately determined that the coupon-based settlement was fair, reasonable, and adequate in light of the release and likely value to class members.
3. Whether the attorneys’ fee award was supported by an adequate record and reasonableness analysis tied to the benefit conferred on the class.

## Decision

- The Appellate Division reversed the order and judgment approving the settlement, vacated the settlement approval and fee award, and remitted for further proceedings.
- The court found no indication in the record that the trial court meaningfully considered CPLR 901 and 902 factors in certifying the settlement class.
- The court found no indication that the trial court adequately evaluated the reasonableness of the settlement’s terms, including the coupon relief, given the breadth of the release.
- The court found no adequate record-based analysis supporting the reasonableness of the attorneys’ fee award.

## Legal Principles

- Settlement-only class certification requires the same statutory showing as litigation classes; courts must consider and apply CPLR 901(a) and 902 factors on the record.
- A court approving a class settlement must determine, on a developed record, that the settlement is fair, reasonable, and adequate in relation to the claims asserted and the rights released.
- Coupon-based relief requires careful evaluation of the relief’s real value to class members, including likely utilization, limitations on use, and distribution method, especially when paired with a broad release.
- Attorneys’ fees in class settlements must be supported by an adequate record and a reasonableness analysis that accounts for the value actually conferred on the class (using an appropriate method such as lodestar and/or percentage-based review).
- Objector challenges can require heightened judicial explanation; approval cannot rest on conclusory findings when substantial rights are extinguished by settlement.

## Conclusion

The appellate court vacated approval of a nationwide coupon settlement and fee award because the trial court did not build a record showing compliance with CPLR article 9 for class certification or provide a reasoned, record-based evaluation of the settlement’s value and the attorneys’ fees in light of the broad release of claims.


Klein v. Robert's Am. Gourmet Food, Inc., 28 A.D.3d 63, 808 N.Y.S.2d 766 (N.Y. App. Div. 2d Dep't 2006)